Question

CPA Interview Question

Get his or her take on the below concept.

Does your interviewee believe that SOX has done what it set out to do - prevent future accounting scandals?

Answer 1

My interviewee believes that SOX has done what is required, she backed her view based on the following points:

• 2017 study published by the American Accounting Association (AAA) provides evidence that the requirements SOX set for financial reporting and public audits have, in fact, served as an extremely effective warning process in detecting corporate fraud.

• The AAA report discusses a link that has been established between companies with weak internal financial controls and the incidence of undisclosed fraud. From a sample of roughly 3,500 public companies studied over a three-year period, about 1,500 had material financial weaknesses.

  During the three years studied, over 8 percent of those companies were involved in legal actions as a result of fraud. The report also states that even in the absence of fraud, companies with weak internal financial controls consistently underperformed the market.

  Thus the above points clearly supports the fact that because of the increased scruitiny of the company performance both by SEC and stock markets, investors can be assured of how the companies shall perform